Three Questions To Help Determine If Filing For Bankruptcy Is The Right Choice For You

Filing for bankruptcy is a big move. Before you officially file, you want to make sure it's definitely the best option for your needs—now and in the future. Here are a few questions you can ask yourself to help make such an important decision.

How Much of Your Debt Will Be Canceled?

It's a common misconception that bankruptcy will just wipe away all of your debts. In fact, there are some types of debts that are not cleared by bankruptcy. These include alimony payments (which are not technically debt at all), student loans, and tax debts owed to the government. If the majority of your debt falls into one of these categories, then there may not be a lot of benefit in filing for bankruptcy. And even if most of your debt is dischargeable, it's important to know, going in, that you may still have some tax or student-loan debts to pay off when your bankruptcy filing is complete.

Have You Tried to Pay off Debt?

Filing for bankruptcy does have its consequences. Your credit report will show the bankruptcy for 7 to 10 years, during which you'll have a difficult time getting another loan or taking out a credit card. For this reason, most experts recommend that people at least try to pay off their debts before filing for bankruptcy as a last resort. Make an appointment with a financial counselor, and see what kind of program they recommend for you to start paying off your debt. If the program seems feasible, then work with it for a few months before reconsidering whether bankruptcy really is a good choice. On the other hand, if paying off debt seems like it would require you to sell your home, take on a third job, or make other drastic lifestyle changes, bankruptcy may be a wise choice.

Are You Facing Foreclosure on Your Home?

If your home is safe and you're able to pay your mortgage without a huge struggle, then perhaps you want to try paying off debt a bit longer before filing for bankruptcy. On the other hand, if you are facing foreclosure, filing bankruptcy right away is a good option. Filing will stop the bank from taking further action, at least for the time being. Once your other debts are discharged, you can get current on your mortgage, so you don't end up losing your home in the process.

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